MANTRA FOR REVIVING THE PRIMARY MARKETS
In the last one year benchmark indices have gone up by nearly 20%. In the normal circumstances primary markets too should be buzzing with IPOs. However only 2 IPOs have hit the market in the last one year. Then what ails our primary markets? Lack of confidence among the retail investors firstly on the issuers and then on the lead managers. Between 2009 and 2011 around 130 companies entered the primary markets. At least 20% of them were fraud IPOs in one way or the other. The market regulator SEBI has banned some promoters, merchant bankers other inter intermediaries who were involved in defrauding the public during 2009-11. Primary markets investors have burnt their fingers investing in the IPOs that came during that period. Therefore inspite of secondary market going up by 20% in the last one year not much activity are seen in the primary market.
For revival for primary markets SEBI has to keep this mind while according permission to to IPOs to tap the market.
1. Permit only those companies which have clean track record. Weed out corruption at clearance level.
2. Put some break on pricing. Do not give issuers and merchant bankers a free hand. Both are greedy.
3. SEBI should direct the issuers / lead managers to keep in mind the erstwhile CCI formula while fixing the premium.
Quality IPOs, attractively priced, leaving something on the table for retail investors can hit the market any time, even if the Sensex is down by 2000 points. The mantra is quality IPOs and attractive pricing. Hope SEBI will do some thing right on this front.
[...] predictions is a favourite year end activity. We did ours: 7 Business Calls We Got Right & Forbes India Portfolio delivers 27% returns over last year. They are for 2012. Things get more interesting if the time span is 10 years. In 2003, Wired [...]
the article is well written by you and comment of srinivasan. a lot well worthy companies are languishing at their lows............among the capital goods companies you have limited yurself... when the supply mismatch is more than 30%.....it seems we must give more than 45% weight to the inaction of the political bosses......
Congratulations. Things were so bleak at the beginning of this year after the U.S. rating downgrade and a deepening of the euro debt crisis – not to speak of the rupee’s devaluation and the looming economic slowdown -- that it would have been difficult to make any prediction at all. Now, in hindsight, it was a fantastic year. But to make such recommendations at the beginning of the year is a classic achievement.
For all the scare about the debt crisis and the fiscal cliff, both Europe and the U.S. have performed hugely. Emerging markets have rebounded late in the year. India is at a sniffing distance of its record high.
But unlike Forbes India, most money managers around the world actually missed the rally. Trading volumes have plummeted in each and every market across the world. It is funny that the rise of algorithmic trading across the world has coincided with a precipitous fall in volumes. Champions of high-frequency trading have argued in its favour on the grounds that it brings liquidity. But data proves otherwise. This clearly shows that computers can’t trade on their own; they need a human trigger to multiply volumes. When human traders stay away, algo trading is ineffective.
Surprisingly, and going against the traditional wisdom that low volumes will lead to huge price swings, volatility is actually at the lowest since the financial crisis. There seems to be a fine balance between bulls and bears with a slight advantage to bulls. By any reckoning, an explosion in volatility is overdue, but it is anybody’s guess as to when it will happen.
For the coming year, I remain hopeful that global markets will rally again. There is a huge amount of cash around the world waiting to be deployed. There is a huge crowd of money managers who missed the 2012 rally that want to come in.
While Europe has made some progress in tackling its problems, the reason why markets will ignore the debt crisis in the new year is that they are just tired of it. They have priced in every worst-case scenario. There can’t be any surprise any more from Europe.
In the U.S., the bipartisan wrangling over the fiscal cliff is unlikely to lead to a permanent solution by the end of this month. They will probably go in for a truce and a temporary solution. But that’s OK. Just like the European Central Bank has compensated for the inaction of euro zone countries, the Federal Reserve is compensating for the fiscal impasse. One may argue that it is a time bomb that has been reset to a later date. That’s true. But that does give you more time to think how to defuse the bomb.
As for India, its reputation is at the lowest since economic reforms began in 1991. For years, businessmen were smugly telling us that India’s reforms were irreversible and that we had crossed a bridge that we would never go back to. Politicians have proved them wrong. They have reset the clock to 1984 in most cases. Reform measures have been withdrawn, changed or abandoned. The infrastructure crisis has worsened to a level not seen before. Even the current euphoria over foreign direct investment in the retail sector is to be seen in this context. The BJP has already said it will roll back the move if it is voted in. Whether they mean it or not, a global retailer will take that into account before making an investment decision.
All told, I think it is time that we gave this “capital preservation” theme a nice, long holiday. This past year has shown that it was not the time to protect your capital, but to play with it. Not many realized it until it was too late. So, advising people to safeguard their capital actually went against their interest.
This year may be the time for individual investors to turn the corner. They must enthusiastically review their retirement plans, set targets for children’s education and the acquisition of property and generally draw a plot to enrich themselves. The new year will throw up plenty of opportunities for that.
2012 was the year we exorcised the ghost of the 2008 financial crisis. 2013 will be the year we start a new epoch. Tighten your seat belt and get ready for an exhilarating ride.
But also keep your weather eye open for the next crisis in the making.
In the CPP table I think you have the Price column dates mixed up...
Thanks Arindam. Our columns had indeed got mixed up, we have corrected it yesterday. Appreciate for alerting us on the error.
I guess, there is some confusion regarding Castrol's performance. It has performed pretty well but have you considered its price relative to bonus issued in the ratio of 1:1 in July 2012?
Thanks for pointing out the Castrol Bonus. We have adjusted the bonus and now the returns on the CPP portfolio are 25%. We regret the error.